Margins feeling tighter than ever? You’re not imagining it. Between rising costs, labor challenges, and customer pressure, it’s getting harder for manufacturers to stay profitable. This article unpacks five hidden margin killers—and gives you smart, practical ways to fix them before they sink your bottom line.
1. You’re Saying “Yes” to the Wrong Jobs
Not every job that comes through the door deserves a “yes.” In fact, some of them quietly bleed your margins dry—even if they look great on paper. One of the most common mistakes manufacturing businesses make is chasing every opportunity, thinking more jobs will lead to more profit. But in reality, some jobs cost you more than they’re worth.
Let’s say a job offers $100,000 in revenue. That might sound great. But if it’s a custom one-off, needs non-standard tooling, requires multiple changeovers, and has a tight delivery timeline, your true cost to complete it might be $97,000. That leaves you with $3,000 in profit—or just 3%. And that’s before something goes wrong. If anything slips, you’re in the red.
Now contrast that with a $40,000 job that’s repeatable, runs on equipment you already have tooled up, and takes half the floor time. You could net $12,000 on that one—30% margin—with less risk, less stress, and more control.
The real insight here? Revenue is not the same as profit. Some of your largest jobs may be your least profitable. That’s a trap a lot of businesses fall into, especially when things get slow and the instinct is to say yes to anything that moves.
What should you do instead? Start with a simple job profitability scoring system. You don’t need fancy software. Build a basic checklist that evaluates the following: setup complexity, need for new tooling, likelihood of change orders, timeline flexibility, and customer payment terms. Give each job a score—and only pursue the ones that meet your target margin threshold unless there’s a strategic reason not to.
Also, don’t be afraid to say no. It’s not just about walking away from bad jobs—it’s about freeing up capacity for the right ones. One business I worked with started saying no to their least profitable 15% of jobs. Within six months, they had higher overall revenue and a 9% boost in average job margin—just by being more selective.
Here’s the key takeaway: The best manufacturing businesses aren’t the busiest. They’re the most profitable. Start scoring jobs for margin, not just revenue, and you’ll see a major difference in how your business performs over time.
2. Pricing That’s Stuck in the Past
If you’re still using pricing models from two years ago—or even six months ago—there’s a good chance you’re underpricing your work. Costs have shifted dramatically in recent years: raw materials, labor, freight, energy, even compliance requirements. If you haven’t updated your pricing to reflect those shifts, you’re leaving money on the table every single day.
The problem is that many businesses hesitate to raise prices. There’s a fear it’ll scare off customers. But here’s what’s more dangerous: keeping prices flat while your costs quietly climb. That gap between cost and price? That’s your margin disappearing.
One way to approach this is to start small. Pick your top 10 highest-volume jobs and recalculate the real cost to make them today—not what they cost last year. Look at material costs, floor time, labor, and indirects like setup and maintenance. Then adjust your pricing accordingly.
One hypothetical example: A sheet metal shop was charging $220 per unit on a part they’d been running for years. When they finally did a cost review, they realized it now cost them $205 to produce—with only $15 in gross margin per unit. After adjusting the price to $245, they kept all their existing customers but started capturing a healthy 16% margin again.
Customers don’t always leave because of price increases—they leave when value doesn’t match price. If you’re delivering on-time, consistent quality, and responsive service, you have room to adjust. And if you’re not charging based on real costs today, you’re effectively discounting your services without knowing it.
Here’s what works: review pricing quarterly, even if it’s a quick check. Don’t treat it as a once-a-year event. Costs move faster now. Your pricing needs to keep up.
3. Too Much Waste Hiding in Your Operations
Even well-run shops are leaking money through everyday operational waste. We’re not just talking about piles of scrap—though that’s part of it. We’re also talking about idle time, inefficient changeovers, overproduction, and parts waiting on inspection. It’s the stuff that hides in plain sight because it’s always been “just how we do things.”
Waste is often normalized, but it eats into your margin relentlessly. Every extra minute a machine sits idle or every time a batch is reworked—that’s money gone.
The good news? You don’t need to launch a massive Lean Six Sigma program to fix it. Start with one thing: track OEE (Overall Equipment Effectiveness) for your top three machines. This gives you a simple, clear view into how much time is spent producing good parts, versus how much is lost to changeovers, downtime, or defects.
From there, bring your team into it. Hold short weekly waste huddles on the shop floor. Ask operators one simple question: “What slowed you down last week that we can fix this week?” You’ll be surprised how many cost-saving ideas come from the people closest to the work.
Here’s a realistic scenario: A packaging manufacturer ran a daily 5-minute check-in with operators and supervisors. Within 30 days, they identified and fixed two recurring machine stops and cut setup time on one line by 15%. The result? 5% more output with zero additional cost.
The insight here is simple but powerful: waste doesn’t need a big spotlight to be eliminated. Small, consistent improvements kill it off quietly—and put margin back in your pocket week by week.
4. Quoting That’s Costing You Money
A lot of businesses lose money before the job even starts—because they quoted it wrong. Underquoting is one of the fastest ways to kill margins. It usually happens with good intentions. You want to win the work. Maybe you didn’t have time to gather all the right numbers. Maybe it “felt close enough.” But when the actual job hits the floor, the gaps start to show.
There’s a better way. Use real, historical data to drive your quoting process. Look at past jobs that are similar in size, complexity, and materials. What did they actually cost you to run? How long did they really take? Were there change orders or unexpected rework?
Even a simple Excel tracker with 12 months of job data can give you powerful insight. Build ranges for labor time, tooling setup, scrap risk, and overhead. Then quote against those ranges instead of best guesses.
One hypothetical example: A CNC machining shop had been underbidding complex parts. After looking at past job data, they realized they consistently underestimated setup time by 30% and inspection time by 20%. They updated their quoting model to include these costs and began adding a “complexity buffer” for any first-run parts. In six months, they increased win rates slightly—but more importantly, every job they won was profitable.
Quoting isn’t about being the cheapest. It’s about being the most accurate. The more precise your quotes, the more consistent your margins—and the more confident you’ll be in saying yes to the right jobs.
5. You’re Over-Relying on One or Two Customers
Having a “whale” customer can feel like a win. They keep the machines running, keep people busy, and make your revenue charts look great. But there’s a hidden danger: concentration risk. If one or two customers make up 40% or more of your revenue, they often end up calling the shots—on pricing, timelines, and payment terms.
That puts your profit margins at serious risk. Big customers know they have leverage. And if they ask for a 10% discount, stretch payment terms from 30 to 60 days, or demand quicker turnaround without paying for it—you’re stuck.
What’s the fix? Diversification. Start by identifying your top customers by margin contribution, not just revenue. Look at which ones pay on time, are less demanding, and allow for smoother operations. Then ask: how can I find more like them?
You don’t need to fire your big customer. But you do need to rebalance the portfolio. Set a target: no single customer should be more than 25–30% of your business. It’s not just safer—it gives you more control and negotiating power.
Hypothetical example: A parts manufacturer had one customer making up 52% of their revenue. That customer started pushing for longer payment terms and tighter delivery windows. The owner knew it was a risk. Over 18 months, they steadily built up new business with smaller, high-margin customers and reduced their dependency to 30%. That shift gave them breathing room—and restored pricing control.
The takeaway? Big customers can make you—but they can also break you. Balance is everything. Margin health depends not just on what you make, but on who you’re making it for.
3 Practical Takeaways to Apply This Week
1. Revisit a recent quote and compare it to actual costs. Did the job go as planned—or did it cost more in time, labor, or materials than expected? Adjust your quoting model based on what you find.
2. Run a quick profitability check on your top five jobs by revenue. Are they your top five by margin too? If not, start asking why.
3. Pull customer data from the past 12 months. List your top five customers by revenue, and your top five by profit. If they’re not the same, it’s time to think differently about where you grow next.